Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
First Defiance Financial in Focus
Headquartered in Defiance, First Defiance Financial (FDEF - Free Report) is a Finance stock that has seen a price change of 11.75% so far this year. The holding company for First Federal Bank of the Midwest is currently shelling out a dividend of $0.19 per share, with a dividend yield of 2.77%. This compares to the Financial - Savings and Loan industry's yield of 2.38% and the S&P 500's yield of 2.03%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.76 is up 18.8% from last year. In the past five-year period, First Defiance Financial has increased its dividend 5 times on a year-over-year basis for an average annual increase of 18.91%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. First Defiance's current payout ratio is 34%, meaning it paid out 34% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FDEF for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.37 per share, which represents a year-over-year growth rate of 6.28%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that FDEF is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).